Digital music industry veteran Tim Quirk examines the coming arms race in the music industry, with online music services competing to offer artists programs and features which enable them to generate revenue beyond just streaming royalties.

There’s a development brewing among online music services that’s simultaneously overdue and underappreciated. It’s an arms race, and I’m very surprised it hasn’t gotten more attention from reporters and investors. But I’m even more surprised by who’s winning.

I’m talking about artist services: programs and features that help musicians generate revenue beyond streaming royalties on a given platform by connecting directly to the fans that platform attracts, and selling those fans whatever the artist might choose – tickets, merchandise, VIP experiences, and more.

Until very recently, few players in this space prioritized such features, mostly because they’ve considered artists suppliers rather than potential customers. Listeners are their customers. Building a viable business means attracting and retaining as many listeners as possible, so most development and marketing has focused on them.

That’s shifting, slowly, as two separate forces converge.

First, no online music service can prevail if it sells only music. Perhaps Apple, Google and Amazon can afford to use their music services as break-even products (or even loss leaders) that attract customers for higher-margin products. But pure music plays such as Spotify, Tidal and Napster are in a very vulnerable position. Operating costs are astronomical. Margins are thin. Churn rates are high.

At the same time, the creative community’s overwhelming negative opinion about most online music services has only been growing over the past decade. Artists and labels don’t care how much money an online service might be losing; they care that the royalties those services are paying are only a fraction of a penny per play. The executives seem to be well compensated; why aren’t the artists?

Hence, the artist services arms race, which has been building over the past year and will likely become a much bigger factor in how these music offerings compete with one another going forward.

Pandora AMP + Ticketfly

Full disclosure: my company, Freeform, can be classified as an artist services provider, so my take on things could be biased. But it’s also what’s given me insight into this phenomenon, and specifically, who’s winning. Because shockingly, the service that looks to be the farthest ahead right now doesn’t even offer an on demand subscription service (yet): Pandora.

Yes, Pandora is winning this race. They’re kicking everyone else’s ass when it comes to artist services, and from where I’m sitting it looks like those kicks will only get more powerful.

AMP, Pandora’s Artist Marketing Platform, has not gotten nearly the amount of publicity it merits, but I can state categorically that the value it delivers to artists, managers and labels is already profound. A feature Pandora’s calling AMPCast allowed G-Eazy to record a brief message to fans on his mobile phone. A day later, that clip was playing to thousands of Pandora listeners, directing fans to install his Freeform app. That one spot generated 50x the conversions of a Facebook post. No marketing channel we’ve used for any of our artist apps has proven even half as powerful. And it was completely free. Pandora has said they have no plans to charge for this service. (Don’t tell them, but I’d gladly pay.)

I don’t have a count of how many artists or managers are currently making use of the platform, but those who are share similar stories, all in the same I-can-barely-believe-the-numbers-I’m-seeing tones of astonishment. Freeform used AMPcast to drive app installs, but it can theoretically be used to promote ANYTHING an artist chooses – thus, the immediate revenue opportunities are already miles beyond whatever any competitor is offering.

That’s important, because artists are accustomed to hearing there’s “promotional” value in a stream, and they’re equally used to dismissing such claims as bullshit. Platforms like AMP give services a way to quantify EXACTLY how much additional value a given stream might generate beyond the royalty it pays. And the service that can generate the most additional value for artists will come to be viewed as an important partner, rather than a potential adversary.

At the moment, AMPcast audio drops and improved analytics via the Next Big Sound acquisition are the main features AMP offers individual artists and management teams. They are both powerful (in the right hands, at least, by which I mean digitally-savvy management teams who can interpret the data effectively to guide tours and other promotions), and together they are significantly more than individual artists can receive from Google/YouTube or Spotify.

But the real promise of AMP, in my opinion, is still to come:

Artist Profiles, which COO Sara Clemens has publicly stated will give artists, “The ability to represent yourself as a seller”

TicketFly integration

The combination of all those indicate that Pandora is wisely planning not just to build bridges between artists and their Pandora listeners, but to give artists and their teams a very high degree of control over how to utilize those connections, plus a robust set of analytical tools to help them optimize the performance of these new channels. While the fruits of those labors are yet to be revealed, the strategic wisdom is highly encouraging, as is the fact that Pandora is already doing so much more than any of their main competitors.

Spotify + Merchbar

Take Spotify, whose most recent move in this area was an integration with Merchbar, a music merchandise retailer, in June. While this integration does give artists some ability to generate additional revenue from their Spotify listeners, doing so requires using a third party system (as does Spotify’s use of Songkick concert listings). These sorts of 3rd party integrations are what we did at Rhapsody in the aughts, when we recognized an opportunity but chose to devote limited engineering resources to customer-facing features.

To be fair, Spotify’s Merchbar integration was necessitated by YouTube’s acquisition of Bandpage, which had previously enabled its customers to sell merch and more via Spotify and other partners. It’s a reasonable enough interim step, but if Spotify’s smart they’re already working on a more robust set of artist tools.

YouTube + Bandpage

Meanwhile, YouTube’s acquisition of Bandpage suggests Google could soon offer artists an AMP- like suite of services enabling them to monetize their YouTube and Google Play listeners via merch sales and more. The low price YouTube paid - reportedly $8 million, even though Bandpage had raised nearly $28 million of venture capital – will come to be viewed as an insanely great bargain, given the power of the artist tools BandPage brought to Google.

The biggest problem facing most services’ artist programs is that they don’t scale. Anyone can create a custom promotional program, and it’s easy to get headlines when a platinum artist or two boasts of increased album or ticket sales after such a promotion, but it’s a challenge to create programs that can be utilized by tens of thousands of artists, with minimal involvement from employees. Likewise, the most robust artist platform is meaningless if no artists know about or use it.

Pandora is far out front in building a self-serve platform that can scale to accommodate every artist in its catalog. But Google and Spotify have the engineering talent to catch up, fast.

Unlike other arms races, this one will be fun to watch. And for once, the dealers won’t be the only ones making money.

Tim Quirk, Founder and CEO of Freeform, has spent the past 15 years helping build groundbreaking digital music services. He was part of the initial team at listen.com that launched Rhapsody, the first on demand music subscription service, in 2001, and was most recently Head of Global Content Programming for Google Play. He spent much of the 80’s and 90’s as the singer and lyricist for Too Much Joy.

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The Coming Arms Race In Online Music: Artist Services [TIM QUIRK]

Digital music industry veteran Tim Quirk examines the coming arms race in the music industry, with online music services competing to offer artists programs and features which enable them to generate revenue beyond just streaming royalties.